Ameresco(US:AMRC)2023-11-06 16:00PART I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements For the nine months ended September 30, 2023, Ameresco reported decreased revenue and net income due to project timing, while assets and liabilities increased, driven by energy asset growth and financing Condensed Consolidated Balance Sheets As of September 30, 2023, total assets increased to $3.46 billion and total liabilities to $2.51 billion, primarily driven by growth in energy assets and long-term debt, with stockholders' equity modestly rising Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,030,123 | $1,001,351 | | Energy assets, net | $1,656,585 | $1,181,525 | | Total Assets | $3,460,993 | $2,876,821 | | Total Current Liabilities | $882,342 | $812,068 | | Long-term debt and financing lease liabilities, net | $1,022,256 | $568,635 | | Total Liabilities | $2,513,692 | $1,957,167 | | Total Stockholders' Equity | $899,126 | $873,031 | Condensed Consolidated Statements of Income For Q3 2023, revenues decreased 24.1% to $335.1 million and net income fell 24.9%, while nine-month revenues dropped 37.5% to $933.3 million and net income decreased 61.4%, primarily due to large project timing Performance Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $335,149 | $441,296 | $933,265 | $1,492,695 | | Gross Profit | $63,656 | $79,556 | $172,253 | $229,237 | | Operating Income | $21,430 | $38,938 | $48,143 | $110,678 | | Net Income | $20,842 | $27,735 | $30,812 | $79,906 | | Diluted EPS | $0.40 | $0.51 | $0.54 | $1.44 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities improved to $40.4 million, while investing activities increased to $465.2 million due to energy asset investments, and financing activities provided $532.4 million from new debt Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $(40,421) | $(273,169) | | Net Cash from Investing Activities | $(465,193) | $(202,664) | | Net Cash from Financing Activities | $532,401 | $554,194 | | Net increase in cash | $25,807 | $76,504 | - Capital investment in energy assets significantly increased to $445.5 million in the first nine months of 2023, compared to $182.1 million in the same period of 202223 Notes to Condensed Consolidated Financial Statements (Unaudited) The notes detail key accounting policies, the acquisition of Enerqos Energy Solutions for $13.4 million, a substantial increase in total debt to $1.46 billion for energy asset growth, and a 52.1% effective tax benefit from IRA credits - On March 30, 2023, the company acquired Enerqos Energy Solutions S.r.l. for a total purchase consideration of $13.4 million, resulting in $6.9 million of goodwill5758 - Total debt and financing lease liabilities increased from $915.7 million at year-end 2022 to $1.46 billion as of September 30, 2023, mainly due to increased non-recourse construction revolvers and term loans89 - The company recorded an income tax benefit of $10.6 million for the nine months ended Sep 30, 2023, resulting in an effective tax rate of -52.1%, primarily due to benefits from the Inflation Reduction Act (IRA), including investment tax credits and Section 179D deductions103104 - Contracted backlog stood at $2.43 billion as of September 30, 2023, with approximately 35% expected to be recognized as revenue in the next twelve months54 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue and net income declines to large project timing, highlights a strong $3.7 billion backlog and $1.8 billion assets in development, notes IRA impacts and supply chain challenges, and confirms sufficient liquidity through new debt financing Key Factors and Trends The business environment is shaped by the IRA causing project delays, ongoing global supply chain issues, potential U.S. government shutdown risks, and management of delays and potential liquidated damages for SCE battery storage projects - The Inflation Reduction Act (IRA) is seen as favorable, but has led to some project delays as customers evaluate its benefits and funding mechanisms157 - Global factors like supply chain disruptions, labor shortages, and inflation negatively impacted results in the first nine months of 2023 and are expected to continue158161 - The company is working with Southern California Edison (SCE) to evaluate force majeure claims for delays on three BESS projects, potentially facing up to $89 million in liquidated damages if unsuccessful168 Backlog and Assets in Development The company's total project backlog grew significantly to $3.7 billion and assets in development increased to $1.8 billion as of September 30, 2023, indicating strong future growth potential Project & O&M Backlog (in thousands) | Backlog Type | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Total Project Backlog | $3,701,340 | $2,626,775 | | - Fully-contracted | $1,188,460 | $933,295 | | - Awarded, not yet signed | $2,512,880 | $1,693,480 | | O&M Backlog | $1,237,985 | $1,245,790 | - Assets in development increased to an estimated $1.8 billion at September 30, 2023, from $1.4 billion at the same time in 2022175 Results of Operations For Q3 2023, revenue decreased 24.1% and operating income fell 45.0%, while nine-month revenue dropped 37.5% and operating income 56.5%, primarily due to lower project revenue from the large SCE battery storage project Q3 Year-Over-Year Comparison (in thousands) | Metric | Q3 2023 | Q3 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $335,149 | $441,296 | $(106,147) | (24.1)% | | Gross Profit | $63,656 | $79,556 | $(15,900) | (20.0)% | | Operating Income | $21,430 | $38,938 | $(17,508) | (45.0)% | | Net Income | $20,842 | $27,735 | $(6,893) | (24.9)% | Nine Months Year-Over-Year Comparison (in thousands) | Metric | YTD 2023 | YTD 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $933,265 | $1,492,695 | $(559,430) | (37.5)% | | Gross Profit | $172,253 | $229,237 | $(56,984) | (24.9)% | | Operating Income | $48,143 | $110,678 | $(62,535) | (56.5)% | | Net Income | $30,812 | $79,906 | $(49,094) | (61.4)% | Business Segment Analysis For the nine months ended September 30, 2023, revenue declines were concentrated in U.S. Regions and U.S. Federal segments due to project timing, while the All Other segment grew significantly, and income before taxes decreased across most segments Revenues by Segment (Nine Months Ended Sep 30, in thousands) | Segment | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | U.S. Regions | $406,593 | $983,111 | (58.6)% | | U.S. Federal | $226,916 | $276,198 | (17.8)% | | Canada | $51,140 | $43,999 | 16.2% | | Alternative Fuels | $85,974 | $87,874 | (2.2)% | | All Other | $162,642 | $101,513 | 60.2% | Income Before Taxes by Segment (Nine Months Ended Sep 30, in thousands) | Segment | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | U.S. Regions | $33,401 | $77,407 | (56.9)% | | U.S. Federal | $26,227 | $36,623 | (28.4)% | | Canada | $3,027 | $1,482 | 104.3% | | Alternative Fuels | $7,445 | $18,891 | (60.6)% | | All Other | $6,514 | $8,952 | (27.2)% | Liquidity and Capital Resources The company funds operations through cash flow and significant debt financing, having raised $566.4 million from non-recourse loans and $100.3 million from sale-leasebacks in the first nine months of 2023, and believes current liquidity is sufficient through at least November 2024 - The company believes cash, working capital, and availability under its credit facilities will be sufficient to fund operations through at least November 2024188 - In August 2023, the company entered into a two-phased agreement to acquire an energy asset project and Bright Canyon Energy Corporation (BCE), involving cash, seller financing, and assumed debt190191192 - The company has actively used project financing, raising $566.4 million from non-recourse loans and $100.3 million from sale-leasebacks in the first nine months of 2023 to fund renewable energy plant construction198199 Quantitative and Qualitative Disclosures About Market Risk As of September 30, 2023, there have been no significant changes in the company's market risk exposures compared to those described in its 2022 Form 10-K - There have been no significant changes in market risk exposures that materially affected the quantitative and qualitative disclosures as described in Item 7A to the 2022 Form 10-K212 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with updates made to internal controls for a new ERP system and complex lease agreements - Management concluded that as of the evaluation date, the company's disclosure controls and procedures were effective at a reasonable assurance level213 - Changes to internal controls were made to accommodate a new ERP system and to handle complex lease agreements with non-monetary, in-kind consideration215 PART II - OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business but does not anticipate any material adverse effects on its financial condition or operations - The company does not believe that any currently pending or threatened legal proceedings will have a material adverse effect on its business, results of operations, or financial condition217 Risk Factors This section refers to the detailed risk factors in the 2022 Form 10-K, indicating no material changes to those risks - The report directs readers to the "Risk Factors" section in the 2022 Form 10-K for a comprehensive description of business risks218 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q3 2023, with approximately $5.9 million remaining available under its stock repurchase program as of September 30, 2023 - No shares were repurchased in Q3 2023. Approximately $5.9 million remains authorized for repurchase under the existing program as of September 30, 2023219 Other Information This section discloses Director Jennifer Miller's adoption of a Rule 10b5-1 trading plan on May 22, 2023, for the potential sale of up to 40,000 shares - Director Jennifer Miller adopted a Rule 10b5-1 trading arrangement on May 22, 2023, to sell up to 40,000 shares of Class A common stock223 Exhibits This section lists the exhibits filed with the Form 10-Q, including an amendment to the credit agreement, officer certifications, and financial statements in Inline XBRL Signatures This section contains the required signatures for the Form 10-Q filing